Tips for crypto startups preparing for continued compliance
Between the decline in cryptocurrency prices and the bankruptcy of several major players in the industry, there is no shortage of challenges for cryptocurrency companies today.
However, cryptocurrency companies should not lose sight of their day-to-day responsibilities, especially those related to regulatory compliance.
In fact, both state and federal regulators continue to take enforcement action against cryptocurrency companies for alleged compliance lapses.
Resulting in significant monetary penalties and, in extreme cases, even the arrest of company founders.
The risk posed by inadequate compliance shows no sign of abating.
Early-stage cryptocurrency companies can lay the foundation for future success by continuously evaluating their compliance obligations through a risk-based approach and quickly addressing any deficiencies.
Especially during periods of rapid expansion, as well as keeping a close eye on new regulatory developments.
It’s no secret that cryptocurrency regulation remains complicated, with several government regulators taking different and sometimes competing approaches.
Assess your company’s compliance risks and build a well-equipped compliance function
Cryptocurrency companies of all shapes and sizes would benefit from conducting an unbiased assessment of the compliance risks facing the company.
The Financial Action Task Force (FATF), an independent intergovernmental body that publishes global anti-money laundering standards for companies and governments.
Recommends that financial institutions, including cryptocurrency companies, adopt a risk-based approach.
This approach involves considering a company’s products, services, business model, customers, geography and other factors in order to assess and then address the greatest risks to the company.
As the company evolves and grows over time, these risks should be continually reassessed to ensure that the company stays ahead of all emerging compliance risks.
Cryptocurrency companies are often regulated by an alphabet soup of government entities.
The most common and well-known regulations include, for example:
Registration and licensing requirements. Cryptocurrency companies are often required to register with various government regulators in order to operate.
Although companies may not always recognize this requirement immediately.
For example, many cryptocurrency exchanges or ATMs must register as money service businesses with the US Treasury Department’s Financial Crimes Enforcement Network.
Similarly, the New York State Department of Financial Services (NYSDFS) requires cryptocurrency companies to obtain a “bit license” if they do business in New York or with New York residents.
Will likely include many companies that are not physically based in New York. .
Fight money laundering and know your customer regulations.
Many cryptocurrency companies must comply with Know Your Customer (KYC) regulations.
Require these companies to collect material information about their customers during the registration process.
Anti-money laundering (AML) laws also require companies to monitor transactions and report potentially suspicious activity.
Together, these laws are designed to combat crime and terrorist financing, as well as prevent transactions with sanctioned entities and individuals.
While these laws are widely known, compliance can prove difficult in practice, and cryptocurrency companies continue to be cited for alleged failures to comply with AML/KYC rules.
To build a well-equipped compliance function, cryptocurrency companies should consider hiring experienced compliance professionals who can help identify potential risks and develop effective compliance programs.
These professionals can also help ensure that the company stays abreast of new regulatory developments and industry best practices.
In addition to building a strong compliance function, cryptocurrency companies should also prioritize training and educating employees at all levels of the organization.
This includes educating staff on compliance policies and procedures, as well as providing regular training on emerging risks and regulatory developments.
Finally, cryptocurrency companies should consider proactively working with regulators.
By engaging with regulators early and often, companies can demonstrate their commitment to compliance and build positive relationships with regulators.
This can help mitigate potential enforcement action.
In conclusion, while cryptocurrency companies face many challenges in today’s market, compliance should remain a top priority.
By taking a risk-based approach to compliance, building a well-secured compliance function, prioritizing employee training and education, and proactively engaging with regulators, cryptocurrency companies can lay the foundation for future success.